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November 2010
Morgan Stanley - Non-Deal Roadshow
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Forward-Looking Statements
This presentation contains statements that relate to the projected performance of Zions Bancorporation
and elements of or affecting such performance, including statements with respect to the beliefs, plans,
objectives, goals, guidelines, expectations, anticipations and estimates of management. These
statements constitute forward-looking information within the meaning of the Private Securities Litigation
Reform Act. Actual facts, determinations, results or achievements may differ materially from the
statements provided in this presentation since such statements involve significant known and unknown
risks and uncertainties. Factors that might cause such differences include, but are not limited to:
competitive pressures among financial institutions; economic, market and business conditions, either
nationally or locally in areas in which Zions Bancorporation conducts its operations, being less
favorable than expected; changes in the interest rate environment reducing expected interest margins;
changes in debt, equity and securities markets; adverse legislation or regulatory changes; and other
factors described in Zions Bancorporation’s most recent annual and quarterly reports. In addition, the
statements contained in this presentation are based on facts and circumstances as understood by
management of the company on the date of this presentation, which may change in the future. Zions
Bancorporation disclaims any obligation to update any statements or to publicly announce the result of
any revisions to any of the forward-looking statements included herein to reflect future events,
developments, determinations or understandings.
and elements of or affecting such performance, including statements with respect to the beliefs, plans,
objectives, goals, guidelines, expectations, anticipations and estimates of management. These
statements constitute forward-looking information within the meaning of the Private Securities Litigation
Reform Act. Actual facts, determinations, results or achievements may differ materially from the
statements provided in this presentation since such statements involve significant known and unknown
risks and uncertainties. Factors that might cause such differences include, but are not limited to:
competitive pressures among financial institutions; economic, market and business conditions, either
nationally or locally in areas in which Zions Bancorporation conducts its operations, being less
favorable than expected; changes in the interest rate environment reducing expected interest margins;
changes in debt, equity and securities markets; adverse legislation or regulatory changes; and other
factors described in Zions Bancorporation’s most recent annual and quarterly reports. In addition, the
statements contained in this presentation are based on facts and circumstances as understood by
management of the company on the date of this presentation, which may change in the future. Zions
Bancorporation disclaims any obligation to update any statements or to publicly announce the result of
any revisions to any of the forward-looking statements included herein to reflect future events,
developments, determinations or understandings.
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Agenda
Overview of Zions Key Performance Drivers –Capital –Credit Quality –Revenue Outlook Summary |
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A Collection of Great Banks
Asset and deposit balances as of 2Q 2010; Deposit market share as of 2010
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Multi-Bank Business Model: Competitive Strengths
§ Direct customer access to local decision makers
§ Cross-pollination of ideas between banks
– CEOs & division managers meet frequently to compare best practices,
opportunities, and resolve “intramural” issues
opportunities, and resolve “intramural” issues
§ Community bank feel - local marketing and branding
§ Superior lending capacity relative to community banks
§ Centralization of processing and other non-customer facing elements
of the business
of the business
§ Established market-leading small business lender
– Leading SBA Lender
• Largest SBA portfolio relative to overall size of loan book
– Superior treasury management products & services (Greenwich survey)
§ Local “ownership” of market opportunities and challenges
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Small Business Banking:
National Awards:
• Overall Satisfaction
• Relationship Manager Performance
• Financial Stability
• Overall Treasury Management
Regional Awards:
• Overall Satisfaction - West
• Overall Satisfaction - Treasury Management - West
What Others Say About Us
2009 Greenwich Excellence Awards
in Small Business and Middle Market Banking
Middle Market Banking
National Awards:
• Overall Satisfaction
• Personal Banking
• Relationship Manager Performance
• Credit Policy
• Financial Stability
• Overall Treasury Management
• Accuracy of Operations
• Customer Service
• Treasury Product Capabilities
Regional Awards:
• Overall Satisfaction - West
• Overall Satisfaction - Treasury Management - West
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*Includes FDIC supported assets
Strong Focus on Business Banking - Loan Mix
Loan Portfolio as of
3Q10
3Q10
§Commercial Loans:
80%
80%
§Retail & Other Loans:
20%
20%
Change in portfolio composition since December 2007
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Agenda
Overview of Zions Key Performance Drivers –Capital –Credit Quality –Revenue Outlook Summary |
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Tier 1 Common + Reserves as a % of Risk-Weighted Assets
Source: SNL. ZION as of 3Q 2010; peer group as of 2Q10 (peer 3Q regulatory data not yet reported at time of presentation)
Note: Peer group includes U.S. regional banks with assets greater than $20 billion and less than $200 billion plus footprint competitors WFC and USB
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Source: SNL. ZION as of 3Q 2010; peer group as of 2Q10 (peer 3Q regulatory data not yet reported at time of presentation)
Note: Peer group includes U.S. regional banks with assets greater than $20 billion and less than $200 billion plus footprint competitors WFC and USB
Tier 1 + Reserves as a % of Risk-Weighted Assets
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Basel III New Capital Proposal
B3 estimated capital ratios for Zions assumes elimination of trust preferred securities and other comprehensive income from Tier 1 capital, and adjusts for deferred tax asset limits.
Tier 1 Common
8.77%
Total RBC
16.73%
Tier 1 RBC
14.15%
7.6%
14.5%
11.9%
7.4%
8.7%
7.0%
10.5%
8.5%
11.3%
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Agenda
Overview of Zions Key Performance Drivers –Capital –Credit Quality –Revenue Outlook Summary |
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Credit Quality Trends
*Annualized
Zions excludes FDIC supported assets
Note: Peer group includes U.S. publicly traded regional banks with assets greater than $20 billion and less than $200 billion plus footprint competitors WFC and USB
Source: SNL
NPAs + Greater than 90 Days
Delinquent / Loans + OREO
Delinquent / Loans + OREO
Net Charge-offs as
a % of Loans*
a % of Loans*
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Note: Peer group includes U.S. publicly traded regional banks with assets greater than $20 billion and less than $200 billion plus footprint competitors WFC and USB
Source: Peer group, SNL as of 2Q10. Zions, company documents as of 3Q10
Net Charge Offs - By Loan Type
Percentage of Zions
Total Loans
Total Loans
11.8% 9.6% 5.9% 2.8% 20.0% 20.6% 26.8% 2.5%
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Dollars in millions
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Change in CRE Loans Outstanding (in $billions)
From 4Q07 to 3Q10
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Term CRE
Updated LTV Stratification
Updated LTV Stratification
The MIT Transaction Based Index is a national index that has been applied to Zions’ mostly regional CRE Portfolio
Zions loan data as of 3Q10; TBI data as of 2Q10
Percentage of Loans within each bucket that are Non-Accrual | ||||||
1.9% | 1.7% | 3.5% | 5.6% | 12.6% | 0.7% | 8.3% |
• By attaching each loan to the
TBI index as of the date of the
loans last appraisal we can see
an estimate of the updated LTV
ratios of the portfolio
TBI index as of the date of the
loans last appraisal we can see
an estimate of the updated LTV
ratios of the portfolio
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Agenda
Overview of Zions Key Performance Drivers –Capital –Credit Quality –Revenue Outlook Summary |
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Core net income excludes items that are one time or non-recurring in nature. Incorporated in the Appendix of this presentation is the detail which supports our core net income before
tax calculations. 2Q09 - 4Q09 included material gains from loan portfolio swaps. Swaps are used to manage interest rate risk and were generally added near the peak in the rate
cycle. As hedges became ineffective, gains were realized.
tax calculations. 2Q09 - 4Q09 included material gains from loan portfolio swaps. Swaps are used to manage interest rate risk and were generally added near the peak in the rate
cycle. As hedges became ineffective, gains were realized.
Core Pre-Tax, Pre-Credit Income
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Net Interest Margin - 3Q10
Note: NIM of 4.19% used for Zions NIM, which excludes sub debt amortization expenses but includes FDIC discount accretion for comparison purposes. Excluding FDIC discount accretion,
ZION reports a core NIM of 4.03% for 3Q10.
ZION reports a core NIM of 4.03% for 3Q10.
Peer group includes U.S. publicly traded regional banks with assets greater than $20 billion and less than $200 billion plus footprint competitors WFC and USB. Peer group not adjusted for
accretion of interest income on FDIC acquired loans
accretion of interest income on FDIC acquired loans
Source: SNL as of 3Q 2010
Strong NIM
Driven in part by Strong Demand
Deposits
Deposits
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Core NIM Trends
• Zions expects net interest sensitive
income to increase between an
estimated 4.2% and 7.2% if interest
rates were to rise 200 bps*
income to increase between an
estimated 4.2% and 7.2% if interest
rates were to rise 200 bps*
• Core NIM (excludes discount accretion)
has been generally stable
has been generally stable
– 1Q09 experienced a temporary dip partially
due to an intentional build-up of excess
liquidity during the significant turmoil during
late 2008/early 2009
due to an intentional build-up of excess
liquidity during the significant turmoil during
late 2008/early 2009
– Large senior note issuance in September
2009 had about 8 bps adverse impact on
the core NIM in 4Q09
2009 had about 8 bps adverse impact on
the core NIM in 4Q09
(1) Cash drag refers to the adverse impact on the net interest margin due to the total balance of cash held in interest-bearing accounts. Assumptions used to compute the cash drag include
investing the cash at a rate of 4.5%, similar to the rate achieved on recent loan production. Liquidity targets and loan demand are factors that may prevent fully deploying such cash; the cash
drag is shown for illustrative purposes only.
investing the cash at a rate of 4.5%, similar to the rate achieved on recent loan production. Liquidity targets and loan demand are factors that may prevent fully deploying such cash; the cash
drag is shown for illustrative purposes only.
*Assumes a parallel shift in the yield curve; key assumptions include a slow and a fast deposit repricing response (i.e. if deposit rates are slow to increase Zions expects a 7.2% increase in
interest sensitive income, and if deposits were to reprice quickly Zions expects a 4.2% increase in interest sensitive income); sensitivity analysis based on 2Q10 data
interest sensitive income, and if deposits were to reprice quickly Zions expects a 4.2% increase in interest sensitive income); sensitivity analysis based on 2Q10 data
Due to the extinguishment/ reissuance of subordinated debt in June 2009, Zions experiences non-cash discount accretion, which increases interest expense, reducing GAAP NIM
1Q09 | 2Q09 | 3Q09 | 4Q09 | 1Q10 | 2Q10 | 3Q10 | ||
Cash Drag (1) | 24 bps | 17 bps | 16 bps | 24 bps | 20 bps | 35 bps | 46 bps |
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(1) Linked quarter change in gross loan balance, excluding construction, land, development and FDIC-supported loans
(2) Loan production includes originations and renewals
Loan Growth and Production Trends
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Agenda
Overview of Zions Key Performance Drivers –Capital –Credit Quality –Revenue Outlook Summary |
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Near Term Objectives
§ Reduce problem credits
– Continued intense focus on workouts
– On the margin, increase the use of A/B note structure
§ Increase lending activity
– Additional emphasis on government guaranteed lending programs
– C&I pipelines strengthening in some markets, particularly small and
middle-market enterprises (SMEs)
middle-market enterprises (SMEs)
§ Reduce excess cash balances
– Use of off-balance sheet sweep accounts for business checking
– Lower interest rates on non-relationship interest bearing accounts
– Marginally increase investments in agency securities
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Outlook Summary
▼► | Loans | ||
◄► | Deposits | ||
▼ | Nonperforming Assets | ||
▼ | Credit Costs | ||
▼ | GAAP Net Interest Margin (1) | ||
◄► | Core Net Interest Margin (1) | ||
◄► | Core Non-interest Expense | ||
◄► | OTTI | ||
◄▲ | Capital Ratios |
1) Accelerated amortization of sub debt discount in 4Q10 (~$73.3 million, or approximately 62 bps NIM pressure) compared to
3Q10 ($27.5 million, or 23 bps NIM pressure)
3Q10 ($27.5 million, or 23 bps NIM pressure)
Our outlook remains consistent with our earnings conference call and the subsequent Form 8-k
regarding subordinated debt conversion. Directionally, we expect:
regarding subordinated debt conversion. Directionally, we expect:
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Appendix
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Asset Sensitivity
§ Fixed-rate loans:
– Approximately one quarter of portfolio
– Duration of about 1.5 years
§ Variable-rate loans:
– Approximately three quarters of portfolio
– Floors on approximately 48% of variable-rate loans
– Swaps: $520 million (Pay Floating, Receive Fixed), down from $545
million in the prior quarter
million in the prior quarter
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Loans with Floors (as of 6/30/10)
§ The total amount of loans with
floors that are in-the-money
equal approximately $7.8B
floors that are in-the-money
equal approximately $7.8B
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CDO Portfolio Summary
§ Credit-related OTTI losses in 3Q10: $23.7 million
– The increase in impairment (compared to 2Q10 OTTI of $18.1 million) is primarily due
to assumption changes in prepayment speeds on trust preferred securities, given the
adoption of the Dodd-Frank Act.
to assumption changes in prepayment speeds on trust preferred securities, given the
adoption of the Dodd-Frank Act.
– Excluding that change, OTTI would have been approximately $12.1 million.
*Table includes $2.2 billion par value of CDOs that are backed predominantly by bank trust preferred securities. The par value of all Bank & Insurance backed CDOs is approximately
$2.6 billion
$2.6 billion
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CDO Stress Testing - OTTI
“Deterioration in PDs %” means that the default
curve applied to the performing collateral of
each deal is made worse by the percentage
indicated. Thus a deal with a default curve of
5% stressed to a 25% “Deterioration in PDs %”
would have a 6.25% default probability curve
applied to it, a deal with 20% would go to 25%
and so forth. A “Deterioration in PDs %” stress
of 100% would double the PD curve being
applied to a deal's collateral.
curve applied to the performing collateral of
each deal is made worse by the percentage
indicated. Thus a deal with a default curve of
5% stressed to a 25% “Deterioration in PDs %”
would have a 6.25% default probability curve
applied to it, a deal with 20% would go to 25%
and so forth. A “Deterioration in PDs %” stress
of 100% would double the PD curve being
applied to a deal's collateral.
•Moderate Stress - The PD curve that was
applied to the performing collateral of each
CDO deal in the pricing run is increased by the
% indicated and the resultant values were used
to estimate OTTI losses. The Moderate Stress
Scenario at 100% would result in approximately
$73 million of pre-tax OTTI losses.
applied to the performing collateral of each
CDO deal in the pricing run is increased by the
% indicated and the resultant values were used
to estimate OTTI losses. The Moderate Stress
Scenario at 100% would result in approximately
$73 million of pre-tax OTTI losses.
•Adverse Stress - Incorporates all of the
deterioration of PDs applied to the performing
collateral, but also stresses the PDs applied to
collateral in deferral by the same deterioration
percentages. PDs on deferring collateral are
used to estimate the value of the potential for
this collateral to cure in the future through
recovery or re-performance.
deterioration of PDs applied to the performing
collateral, but also stresses the PDs applied to
collateral in deferral by the same deterioration
percentages. PDs on deferring collateral are
used to estimate the value of the potential for
this collateral to cure in the future through
recovery or re-performance.
•Extreme Stress - This is a very severe stress
scenario that uses the “Moderate Stress”
assumptions for performing collateral, but also
immediately defaults all deferring collateral
instantly with no recovery and no probability to
re-perform in the future.
scenario that uses the “Moderate Stress”
assumptions for performing collateral, but also
immediately defaults all deferring collateral
instantly with no recovery and no probability to
re-perform in the future.
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CDO Stress Testing - Capital
§ Under various stress
scenarios, Zions’
modeling indicates that
OCI (accumulated other
comprehensive income)
would erode, although at a
significantly lower amount
than OTTI (other than
temporary impairment).
scenarios, Zions’
modeling indicates that
OCI (accumulated other
comprehensive income)
would erode, although at a
significantly lower amount
than OTTI (other than
temporary impairment).
§ Under the moderate stress
scenario at 100% greater
PDs, OTTI incurred would
be approximately $73
million pre-tax (see
previous slide). Under
that same moderate stress
scenario at 100% greater
PDs, OCI would only
deteriorate by
approximately $30 million
after-tax.
scenario at 100% greater
PDs, OTTI incurred would
be approximately $73
million pre-tax (see
previous slide). Under
that same moderate stress
scenario at 100% greater
PDs, OCI would only
deteriorate by
approximately $30 million
after-tax.
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History of Bank Deferrals & Defaults in Zions’ CDOs
As of 10-28-10
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Core Net Income Before Tax Detail
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November 2010